Quarries not certain of SARS status

The South African Revenue Service (SARS) has caused "confusion and alarm" by issuing a new draft interpretation note that classifies certain quarries as manufacturers rather than mines, says the Aggregate and Sand Producers Association of Southern Africa (Aspasa).

It says if the interpretation is accepted it will have far-reaching effects on the quarrying industry and might lead to "disproportionate costs between those that are classified as mines and those classified as manufacturers".

"While manufacturers will no longer have to comply with onerous mining legislation, nor pay royalties, they will also not be able to claim capital expenditure allowances — nor will they be able to make use of the diesel rebate scheme that miners enjoy," Aspasa director Nico Pienaar says.

The SARS interpretation note was issued in the context of the widely varying methods used to extract sand, stone and other minerals from quarries, pits, rivers and dunes, Aspasa says, and the varying levels of processing needed to bring such products to the market.

Camilla du Toit, of Shepstone & Wylie Attorneys, has warned industry role players to study the note and send comments to SARS by the receiver’s April deadline, to ensure all concerns are addressed before the finding takes effect.

"One of our concerns is that SARS’ new position in terms of classifying operations goes against the Treasury department’s call for further beneficiation of products at mines," she says.

When further processing of minerals takes place at quarries, SARS wants to classify these operators as manufacturers rather than miners, she says.

Aspasa says it will make a submission about the note before the end of April. It is already talking to SARS and the Treasury.

SARS deputy spokeswoman Marika Muller says the tax authority issues draft documents for comment to gain a range of views on the subject matter. "Once the comment period ends, we will work with those submissions," she says.

In terms of the note there are four main points that can be used to determine what constitutes a miner or manufacturer, namely: the methods or processes used to remove minerals from the earth; the separation of valuable minerals from waste materials; the value of the minerals other than in bulk; and that the minerals must be "extracted" from the soil.

Also, in this context, manufacturers are deemed to make a new product "that is different to what was originally mined".

Ms du Toit says it is clear that the descriptions are open to interpretation. "For this reason the industry needs to investigate this further and … assist SARS to find an interpretation that benefits everyone," she says.

Aspasa says payment of royalties is a "hot topic" among quarry operators in terms of how the value of a mined product is determined in calculating exact payments. It says that in the majority of cases, disagreements with SARS begin over the first point of sale — at which the value of royalties needs to be calculated.

"This is potentially different for different (quarrying) operations and depends on the beneficiation of the product after it is removed from its natural state," says Mr Pienaar.

Ms du Toit says much work still needs to be done "in hammering out agreements on where and how the value of products should be determined in order to allow fair and equal payment of royalties across the industry". But she says this is complicated process.

"Some operations remove material directly from the natural state and load it onto a truck for sale, while others have to blast, transport, crush and move materials to a muck pile. Understandably, the cost and price of these materials are different and may drive the cost of royalties up.

"Aspasa is therefore seeking simplification of the requirements of sand and aggregate quarries. In the meantime, if any Aspasa members believe that royalty calculations are incorrect, we strongly advise them to first ensure that they follow the necessary steps needed to comply with the payment of royalties, while simultaneously bringing the necessary applications to SARS in order to lodge a query," Ms du Toit says.

WHY REGISTER WITH SAIT?

Section 240A of the Tax Administration Act, 2011 (as amended) requires that all tax practitioners register with a recognized controlling body before 1 July 2013. It is a criminal offense to not register with both a recognized controlling body and SARS.